The New York Times says that the mortgage meltdown isn’t just a subprime problem anymore, but has spread into the prime market where consumers with good credit are now struggling to pay their bills.
Plummeting home values are sticking home owners with properties that they refinanced with the intention of selling before their rates jumped. Now they’re trapped in homes they can’t afford and also can not sell for more than they owe.
Here’s an example from the Times:
An example of the spreading credit crisis is seen in Don Doyle, a computer engineer at Lockheed Martin who makes a six-figure income and had a stellar credit score in 2004, when he refinanced his home in Northern California to take cash out to pay for his daughter’s college tuition.
Mr. Doyle, 52, is now worried that he will have to file for bankruptcy, because he cannot afford to make the higher variable payments on his mortgage, and he cannot sell his home for more than his $740,000 mortgage.
“The whole plan was to get out” before his rate reset, he said. “Now I am caught. I can’t sell my house. I’m having a hard time refinancing. I’ve avoided bankruptcy for months trying to pull this out of my savings.”
The article also provides some troubling statistics about auto loans and HELOCs, both of which are seeing increasing amounts of loans in default.
It seems that the heady days of homeowners who were happy to pay huge monthly payments into their “investment” are over:
In a conference call with analysts in December, Kenneth Lewis, the chief executive of Bank of America, said more borrowers appear to be giving up on their homes as prices fall, noting a “change in social attitudes toward default.”
“You don’t mind making a $2,000 payment when the house is going up” in value, said Steve Walsh, a mortgage broker in Scottsdale, Arizona, who has seen several clients walk away from their homes because they couldn’t refinance or sell. “When it’s going down, it becomes a weight around your neck, it becomes an anchor.”